Trading the grain commodities during the summer can sometimes be a perilous journey, but if you are prepared it can often be very rewarding.
The grain commodities include corn, wheat , soybean , oats and rough rice . Soybeans are actually an oilseed, but they are almost always included in the grain complex. Corn and soybeans are the most active during the summer months, as they go through their critical pollination phases during July and August respectively.
Adverse Weather For Grain Commodities
Weather is often the foremost driver of prices during the summer months for grains. Extreme heat in the Midwest can cause the most damage for corn and soybeans. The main states for watching the weather on these crops are Illinois, Iowa, Nebraska and Indiana. It normally takes heat in the high-90s for several days in a row to cause damage. There is a greater chance for crop damage if the soil is already dry going into a heat wave.
Rain is normally beneficial for crops, but it can also cause damage. Rain can cause problems for farmers by disrupting the planting or harvest process, but damage can also be done during the summer in the form of excessive rains. The rains usually have to be well above the average levels for weeks to cause deterioration in crops. Floods tend to cause the most damage, but they are often not widespread enough to make a significant impact.
The grain markets are usually on edge during the summer months and violent rallies can occur at any time. A simple change in a weather forecast can ignite a 15-cent rally in corn or a 30-cent rally in soybeans. Rallies can also fizzle in a hurry, so it is important to protect profits.
Crop Conditions
The main report to watch on crops is the USDA Weekly Crop Progress report. It is released every Tuesday and it provides an updated estimate on the condition of the overall crops. The markets will often rally if the USDA lowers their crop ratings as that translates into lower yields and thus less supply.
The main thing to remember is the markets tend to trade on momentum during the summer. Crops are much more hearty today than they were 30 years ago, so they can withstand more adverse weather. The grains will often hit a high for the year during the summer off some type of weather scare. Once the weather scare abates, the markets can head lower in a hurry.
The summer can provide many trading opportunities in the grain commodities, but a trader often has to be nimble and not be greedy. Remember that buying ahead of the summer months and hoping for a weather scare is usually just considered gambling. A typical year has some minor weather scares during the summer that cause short-lived rallies. Every 5 to 10 years, there seems to be a major weather disaster that causes a lasting rally in the grain markets.
